EDI for human resources saves money and time

Healthcare Financial Management, Jan, 1994 by James J. Moynihan, Gerry Kibat

Healthcare financial managers seeking immediate cost savings through the use of electronic data interchange (EDI) may find that the automation of repetitive transactions can reduce staffing levels in hospital human resource departments and lower the cost of employee benefits. New procedures and EDI also can tighten controls on hospital employee health benefit eligibility and reduce the per employee cost of benefits.

The impact of rising healthcare benefit expenses on the average corporate employer has been well documented. What has not been so well documented is the impact of such increases on hospitals. Hospitals are extremely labor-intensive organizations, and employee compensation is a hospital's single largest expense. As a result, hospital financial managers must pay close attention to full-time-equivalent (FTE) staffing levels.

While FTE levels are important, the goal for healthcare financial managers is to control total compensation expenses, not just staffing levels. It has been easier to manage budgeted staffing levels in recent years than it has been to achieve annual budgeted compensation expenses because of increasing benefit costs. Hospital human resource professionals have responded to the rise in employee benefit expenses by using some of the same strategies employed by Fortune 500 employers. Many hospitals have moved to self-insurance, and many have adopted benefit plans with managed care options. Despite these steps, the cost of employee compensation continues to rise. Where can additional savings be found?

Resourceful human resource managers are lowering costs through the automation of the repetitive transactions in benefit and payroll processing. The maximum savings will accrue to those who automate the entire process, rather than just isolated transactions. Automation of the entire process requires automating data acquisition, integrating the data gathered into internal payroll and human resource programs, and establishing electronic data interchange (EDI) linkages with benefit administrators. A hospital's progress in this area can be judged by the answers to the following questions:

* Has the hospital installed an automated time and attendance system or adopted a voice response system to collect employees' benefit selections?

* Is the data collected used to automatically update the hospital's payroll program?

* Is the data collected passed on to benefit administrators so eligibility files can be updated?

* If a payroll program is calculating employee payroll withholding and deduction information, is that information (and associated funds) transmitted to benefit administrators electronically?

The EDI approach to cost cutting involves reviewing the business process and automating repetitive transactions. The human resource department typically manages two processes that are connected to each other: benefits and payroll.

The relationship between benefits and payroll

The employee benefits process begins with the enrollment of a new employee (or that employee's dependents) and the selection of benefits for healthcare, pension, and other insurance coverages. The benefits process also includes the processing of claims and claim payments, a function frequently outsourced to a professional benefits administrator.

The payroll process also begins with enrollment of a new employee or a change in an employee's pay rate. The payroll process involves the collection of time and attendance data and the calculation of wages due. Payment of wages does not end the process. Payroll processors or an internal payroll program must also calculate payroll deduction information. Payroll deduction information and associated funds are transmitted to a variety of benefit administrators as part of the process.

Payroll and benefits are connected for two reasons. The benefits selected by the employee determines many of the payroll deductions that are calculated for every pay period. A change in deductible levels, the addition of a new dependent, or any other change in benefit selection requires a change in the records of both the payroll program and the relevant benefit administrator. The relationship between the payroll process and the benefits process continues after any change in selected benefits. Benefits selected determine how much money is deducted from wages and all related billing to the employer by benefit administrators on an ongoing basis. Exhibit 1 illustrates the link between the payroll and benefits process.

Automated data acquisition for enrollment

The enrollment transaction is crucial to the quality performance of payroll and benefit processing. Information gathered during enrollment feeds both the payroll system and the claims processing system. The enrollment transaction has become more complex--and more expensive to administer--in recent years. Employees have a much larger array of insurance and retirement benefit programs from which to choose. "Cafeteria style" benefit plans that allow employees to customize their own benefit options are being offered by an increasing number of employers. The problem with this tremendous variety of plans and customization options is that they create additional administrative costs for the employer. One solution is to use interactive voice response software to gather employee benefit selection choices. Having gathered that information electronically through touchtone telephone input, the employer then may pass it on to the payroll program for an automated update, as shown in Exhibit 2.